Alan's Forex Blog |
| Posted: 26 Aug 2010 01:40 AM PDT
 Guest post by Kris Matthews (http://tradeforexfundamentally.com) Let's face it: Forex is a highly competitive game that takes more than the simple "buy when one indicator crosses the other" systems sold for $29.97 on the internet. Just look at the spreads- the fact that the cost of making a trade on the Euro can be as low as 0.0001 tells you right off that so many players and so much money comprise this market that any small newbie trader that enters is likely to get eaten alive unless he really knows how to really play. If you want to achieve forex profits you need to gain an "edge" in this market. An edge is defined as an indication of a higher probability of one thing occurring over another. In trading this means either spotting a reoccurring pattern in price action or knowing information related to traders' positioning in the market. In this article I want to focus on the latter. Think of it this way—if you were playing poker at the MGM in Vegas and somehow knew what the cards in the hands of the other players were, would that give you an advantage? Of course it would! How to spy on the big dogs without cheating Certainly, if you were discovered at the MGM using such a strategy you would probably find yourself face-planted into the red carpet entrance after some big guy threw you out. Fortunately, in the forex market, there's a way for you to get a pretty good idea of the sentiment of the "big dogs" (the major banks and hedge funds who control the money flow in the forex market) without cheating or doing anything unethical. The secret is looking at price action during economic news releases. Economic news releases occur almost every day and the high impact releases such as interest rate decisions, inflation, GDP, employment, retail sales, and manufacturing PMI cause the market to move considerably when the number comes out much better/worse than forecast. The reason is as follows: the big dogs put money into currencies whose countries' economies are expected to do well and take money out of those whose countries' economies are expected to do poorly. They decide which trades to make based on economists' forecasts of high impact economic indicators such as those listed above. If these releases come out better than forecasted, the big dogs and other market players will make adjustments to their positions by buying more of the currency, causing price to go up. Now that's for the normal case. When price action does something strange, like decreasing on better than expected news after a long uptrend, that's an indication that there is not enough demand at higher prices and sentiment is taking a turn for the downside. Do you see how that's like the big market players showing their hands to you? A step by step strategy for forex profits using price action and news
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